The Insolvency and Business Recovery Code (CIRE) deals with insolvency and business recovery.
Stabilising a business
Any business in a position to apply for its insolvency through the courts can, under the terms of the Insolvency and Business Recovery Code, ask the Institute for Support to Small and Medium-Sized Enterprises and Innovation (IAPMEI) to conduct the Out-of-Court Conciliation Procedure (PEC).
The PEC aims to reach an agreement between the business and some or all of its creditors in order to support its recovery. The request to the IAPMEI is made in writing and the applicant must give the reasons for this request, identify the parties to be involved, and indicate the ideal content of the agreement.
The IAPMEI acts as mediator in the out-of-court proceedings, but does not have the power to impose penalties or other coercive measures. In this respect, it facilitates the necessary contacts between the business and the main interested parties with a view to reaching an agreement on the recovery of the business. It is responsible for conducting the meetings held between the parties.
The IAPMEI can also, at any time, ask the applicant or the interested parties to provide clarifications or information that it considers essential, and can also suggest to the applicant amendments to the terms of the agreement initially proposed.
Access to different sources of finance can help overcome financial difficulties.
When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.
Deferment of payments
The social security authorities allow debts to be settled by payment in instalments or by payment in kind.
Payment in instalments may be enforced or specially agreed.
In the tax enforcement process, debts can be settled, under Article 196 of the Code of Tax Procedure and Proceedings (CPPT), through a request for payment in instalments submitted to the Enforcement Process Department of the social security authorities within 30 days of the debt being notified to the business.
As a general rule, the part-payment of outstanding contributions is not permitted. The number of instalments is 36, although in exceptional cases 60 instalments may be allowed.
In the civil enforcement process , debts can be settled in instalments, under Article 882 of the Code of Civil Procedure, through a request submitted to the competent court.
It is possible for special agreements to be reached on debt settlement, provided that the taxpayer is going through a Special Business Recovery Process or has a Financial Consolidation and Business Restructuring Contract.
For this purpose, the taxpayer must prove that adopting such measures is essential and that the agreement proposed will ensure that the business remains viable. In addition, the terms of the agreement must not be any less favourable than those agreed with other creditors, and the agreement must be backed by appropriate security.
In these situations, the maximum number of instalments is 150, which must be equal and successive. The agreement will be cancelled in accordance with the law if the instalments set out in the agreement or any social security contributions falling due while the agreement is in force are not paid.
In accordance with Article 837 of the Civil Code, payment in kind involves providing something other than what was due. Even where this is of a higher value, the debtor will only be released from the debt if the creditor agrees to the arrangement.
The request for payment in kind must be made before the enforcement process begins, and the debt in question must include the capital and interest calculated at the legal rate. For this purpose, a request must be submitted to the Chairman of the Governing Board of the Institute for Financial Management of the Social Security System.
The Office for Integrated Action in Business Restructuring (AGIIRE) comes under the Ministry of Economic Affairs and Innovation and focuses on business restructuring and the associated potential difficulties.
AGIIRE identifies business restructuring opportunities, supports those which will help to revitalise and modernise the business environment, coordinates associated national actions, and monitors business recovery processes. The government provides application forms and diagnosis forms.
Employers can temporarily reduce the normal working periods or suspend employment contracts when, for market, structural or technological, natural disaster or other reasons preventing the business from operating normally, these measures could ensure that the business remains viable and that the corresponding jobs are retained.
A reduction in the normal working periods can involve longer periods of time off work during the day or week, affecting different groups of workers, or a cut in the number of hours.
When a business is facing market, structural or technological problems, collective dismissal may be instigated. This is where the employer plans to simultaneously or successively terminate the employment contracts of at least two or five workers, depending on whether the company is a micro- or small enterprise or a medium-sized or large enterprise, within a period of three months.
Dismissal due to a post being abolished is also justified for economic reasons not connected with the misconduct of the worker or employer. It must be the case that continuing the employment relationship is virtually impossible, that there are no temporary contracts covering the tasks involved in the post, and that the collective dismissal arrangements do not apply.
In both cases, workers will also have the right to appropriate compensation, consisting of one month’s basic pay and seniority bonuses for each full year of service, with a minimum of three months. For each part-year, this compensation will be calculated proportionally.
Chapter XXVI of the Law regulating the Labour Code provides that the Wage Guarantee Fund will ensure that amounts owed to workers as a result of employment contracts, their breach or their termination are paid in cases where the employer is declared insolvent or where the conciliation procedure for the recovery of a struggling business has been initiated.
The Wage Guarantee Fund will pay those amounts falling due in the six months prior to the date when proceedings are brought or when the workers submit their request for the business to be declared insolvent. This Fund will only pay those amounts claimed up to three months before the respective order.
For information on business recovery, with links to technical and financial support instruments, please visit the website of the Institute for Support to Small and Medium-Sized Enterprises and Innovation (IAPMEI).
The first of the recovery programmes offered by the Institute for Support to Small and Medium-Sized Enterprises and Innovation (IAPMEI) is the Business Revitalisation and Modernisation Incentive Scheme (SIRME), which encourages the merger and acquisition of struggling businesses. This programme relies on the ‘Fund for the Revitalisation and Modernisation of the Business Fabric’, which can be accessed by completing an application form. This Fund acts as a financial partner in mergers and acquisitions.